Analyst Note| Karen Andersen, CFA |
We're lowering our Roche fair value estimates from $58/CHF 443 to $55/CHF 433 following the failure of the firm's phase 3 Skyscraper-01 trial, which tested a combination of approved oncology drug Tecentriq with TIGIT-targeting drug candidate tiragolumab in first-line treatment of PDL1-high non-small-cell lung cancer. In March, the first phase 3 readout for a Tecentriq/tiragolumab combination also failed, but this trial tested the combination with chemotherapy in small-cell lung cancer, a smaller niche that is considered more difficult to treat. While Roche did see a numerical improvement in progression-free survival and overall survival at this first look at data from Skyscraper-01, the results did not reach statistical significance, and Roche plans to follow the trial until the next interim readout. However, we're disappointed at the initial result in tiragolumab's potentially largest indication, and we're lowering our Tecentriq combination sales in lung cancer as well as our probability of approval for tiragolumab. Overall, we've lowered our 2026 Tecentriq sales forecast to CHF 8.8 billion from CHF 9.6 billion and reduced our tiragolumab sales forecast that year from CHF 1 billion (50% probability of approval) to CHF 400 million (20% probability of approval). Overall, we think Roche has a solid portfolio extending beyond oncology (including steady growth drivers like multiple sclerosis drug Ocrevus, hemophilia drug Hemlibra, Spinal muscular atrophy drug Evrysdi) that will help the firm maintain top-line growth and margin expansion, once the firm gets past difficult COVID-19 diagnostic comparables over the next year. Roche's innovation in pharma and diagnostics support a stable, wide moat, and shares look undervalued.